Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts, but reflect the Company’s current beliefs, expectations or intentions regarding future events. These statements include forward-looking statements with respect to the Company, including the Company’s business, operations and strategy, and the engineering and construction industry. Statements that are not historical facts, without limitation, including statements that use terms such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “may,” “plans,” “potential,” “projects,” and “will” and that relate to future impacts caused by the Covid-19 coronavirus pandemic and the related economic instability and market volatility, including the reaction of governments to the coronavirus, including any prolonged period of travel, commercial or other similar restrictions, the delay in commencement, or temporary or permanent halting of construction, infrastructure or other projects, requirements that we remove our employees or personnel from the field for their protection, and delays or reductions in planned initiatives by our governmental or commercial clients or potential clients; future revenues, expenditures and business trends; future reduction of our self-perform at-risk construction exposure; future accounting estimates; future contractual performance obligations; future conversions of backlog; future capital allocation priorities including common stock repurchases, future trade receivables, future debt pay downs; future post-retirement expenses; future tax benefits and expenses, and the impact of future tax laws; future compliance with regulations; future legal claims and insurance coverage; future effectiveness of our disclosure and internal controls over financial reporting; future costs savings; and other future economic and industry conditions, are forward-looking statements. In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion of such statements in this Quarterly Report should not be considered as a representation by us or any other person that our objectives or plans will be achieved. Although management believes that the assumptions underlying the forward-looking statements are reasonable, these assumptions and the forward-looking statements are subject to various factors, risks and uncertainties, many of which are beyond our control, including, but not limited to, our business is cyclical and vulnerable to economic downturns and client spending reductions; government shutdowns; long-term government contracts and subject to uncertainties related to government contract appropriations; governmental agencies may modify, curtail or terminate our contracts; government contracts are subject to audits and adjustments of contractual terms; losses under fixed-price contracts; limited control over operations run through our joint venture entities; liability for misconduct by our employees or consultants; failure to comply with laws or regulations applicable to our business; maintaining adequate surety and financial capacity; high leverage and potential inability to service our debt and guarantees; ability to continue payment of dividends; exposure to Brexit and tariffs; exposure to political and economic risks in different countries; currency exchange rate fluctuations; retaining and recruiting key technical and management personnel; legal claims; inadequate insurance coverage; environmental law compliance and inadequate nuclear indemnification; unexpected adjustments and cancellations related to our backlog; partners and third parties who may fail to satisfy their legal obligations; managing pension costs; AECOM Capital’s real estate development; cybersecurity issues, IT outages and data privacy; risks associated with the benefits and costs of the sale of our Management Services and self-perform at-risk civil infrastructure and power construction businesses, including the risk that any purchase adjustments from those transactions could be unfavorable and any future proceeds owed to us as part of the transactions could be lower than we expect; as well as other additional risks and factors discussed in this Quarterly Report on Form 10-Q and any subsequent reports we file with the SEC. Accordingly, actual results could differ materially from those contemplated by any forward-looking statement.
All subsequent written and oral forward-looking statements concerning the Company or other matters attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. You are cautioned not to place undue reliance on these forward-looking statements, which speak only to the date they are made. The Company is under no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise. Please review “Part II, Item 1A—Risk Factors” in this Quarterly Report for a discussion of the factors, risks and uncertainties that could affect our future results.
Overview
We are a leading global provider of professional infrastructure consulting services for governments, businesses and organizations throughout the world. We provide planning, consulting, architectural and engineering design, construction and program management services, and investment and development services to commercial and government clients worldwide in major end markets such as transportation, facilities, environmental, energy, and water.
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Our business focuses primarily on providing fee-based planning, consulting, architectural and engineering design services and, therefore, our business is primarily driven by knowledge-based services. We primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees’ time spent on client projects and our ability to manage our costs. AECOM Capital primarily derives its income from real estate development sales and management fees.
We report our continuing business through three segments, each of which is described in further detail below: Americas, International, and AECOM Capital (ACAP). Such segments are organized by the differing specialized needs of the respective clients and how we manage the business. We have aggregated various operating segments into our reportable segments based on their similar characteristics, including similar long-term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers.
● Americas : Planning, consulting, architectural and engineering design, and construction and program management services to commercial and government clients in the United States, Canada, and Latin America in major end markets such as transportation, water, government, facilities, environmental, and energy.
● International : Planning, consulting, architectural and engineering design services and program management to commercial and government clients in Europe, the Middle East, Africa and the Asia-Pacific regions in major end markets such as transportation, water, government, facilities, environmental, and energy.
● AECOM Capital (ACAP) : Invests primarily in and develops real estate projects.
Our revenue is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, integrate and maximize the value of our recent acquisitions, allocate our labor resources to profitable and high growth markets, secure new contracts, and renew existing client agreements. Demand for our services is cyclical and may be vulnerable to sudden economic downturns and reductions in government and private industry spending, which may result in clients delaying, curtailing or canceling proposed and existing projects. Moreover, as a professional services company, maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability.
Our costs consist primarily of the compensation we pay to our employees, including salaries, fringe benefits, the costs of hiring subcontractors, other project-related expenses and sales, general and administrative costs.
Regarding our capital allocation policy, on September 22, 2021, the Board approved an increase in our stock repurchase authorization to $1.0 billion. At December 31, 2021, we have approximately $790 million remaining of the Board’s repurchase authorization. We intend to deploy future available cash towards dividends and stock repurchases consistent with our capital allocation policy.
We have exited substantially all of our self-perform at-risk construction businesses and divested our remaining non-core oil and gas businesses in January 2022. We have substantially completed our exit of 30 countries, subject to applicable laws, as part of our ongoing plan to improve profitability and reduce our risk profile, and we continue to evaluate our geographic exposure as part of such plan.
We expect to incur restructuring costs of approximately $20 million to $30 million in fiscal year 2022, including $3.4 million in the first quarter, primarily related to previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies. Total cash costs for these restructuring actions are expected to be approximately $20 million to $30 million.
Covid-19 Coronavirus Impacts
The impact of the coronavirus pandemic and measures to prevent its spread are affecting our businesses in a number of ways:
● The coronavirus and accompanying economic effects may reduce demand for our services and impact client spending in certain circumstances; which could in turn adversely impact our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends; however, the uncertain nature of the coronavirus and its duration make it difficult for us to predict and quantify such impact.
● We have restricted non-essential business travel, required or facilitated employees to work remotely where appropriate.
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● The coronavirus has made estimating the future performance of our business and mitigating the adverse financial impact of these developments on our business operations more difficult.
● Certain markets, such as the U.K., Middle East, and Southeast Asia, are experiencing project delays that have impacted our performance and results.
Results of Operations
Three months ended December 31, 2021 compared to the three months ended December 31, 2020
Consolidated Results
Three Months Ended
December 31,
December 31,
Change
2021
2020
$
%
(in millions)
Revenue
$
3,266.7
$
3,313.2
$
(46.5)
(1.4)
%
Cost of revenue
3,066.5
3,128.8
(62.3)
(2.0)
Gross profit
200.2
184.4
15.8
8.6
Equity in earnings of joint ventures
7.9
8.2
(0.3)
(3.7)
General and administrative expenses
(36.4)
(38.4)
2.0
(5.2)
Restructuring costs
(3.4)
(13.0)
9.6
(73.8)
Income from operations
168.3
141.2
27.1
19.2
Other income
2.9
3.9
(1.0)
(25.6)
Interest expense
(25.4)
(30.7)
5.3
(17.3)
Income from continuing operations before taxes
145.8
114.4
31.4
27.4
Income tax expense for continuing operations
22.6
25.6
(3.0)
(11.7)
Net income from continuing operations
123.2
88.8
34.4
38.7
Net loss from discontinued operations
(62.0)
(55.8)
(6.2)
11.1
Net income
61.2
33.0
28.2
85.5
Net income attributable to noncontrolling interests from continuing operations
(5.4)
(5.4)
—
0.0
Net loss (income) attributable to noncontrolling interests from discontinued operations
5.7
(1.5)
7.2
(480.0)
Net loss (income) attributable to noncontrolling interests
0.3
(6.9)
7.2
(104.3)
Net income attributable to AECOM from continuing operations
117.8
83.4
34.4
41.2
Net loss attributable to AECOM from discontinued operations
(56.3)
(57.3)
1.0
(1.7)
Net income attributable to AECOM
$
61.5
$
26.1
$
35.4
135.6
%
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The following table presents the percentage relationship of statement of operations items to revenue:
Three Months Ended
December 31,
December 31,
2021
2020
Revenue
100.0
%
100.0
%
Cost of revenue
93.9
94.4
Gross profit
6.1
5.6
Equity in earnings of joint ventures
0.2
0.2
General and administrative expenses
(1.0)
(1.1)
Restructuring costs
(0.1)
(0.4)
Income from operations
5.2
4.3
Other income
0.1
0.1
Interest expense
(0.8)
(0.9)
Income from continuing operations before taxes
4.5
3.5
Income tax expense for continuing operations
0.7
0.8
Net income from continuing operations
3.8
2.7
Net loss from discontinued operations
(1.9)
(1.7)
Net income
1.9
1.0
Net income attributable to noncontrolling interests from continuing operations, net of tax
(0.2)
(0.2)
Net loss (income) attributable to noncontrolling interests from discontinued operations, net of tax
0.2
0.0
Net loss (income) attributable to noncontrolling interests
0.0
(0.2)
Net income attributable to AECOM from continuing operations
3.6
2.5
Net loss attributable to AECOM from discontinued operations
(1.7)
(1.7)
Net income attributable to AECOM
1.9
%
0.8
%
Revenue
Our revenue for the three months ended December 31, 2021 decreased $46.5 million, or 1.4%, to $3,266.7 million as compared to $3,313.2 million for the corresponding period last year.
The decrease in revenue for the three months ended December 31, 2021 was primarily attributable to a decrease in our Americas segment of $93.8 million, offset by an increase in our International segment of $46.8 million, as discussed further below.
In the course of providing our services, we routinely subcontract for services and incur other direct costs on behalf of our clients. These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in our revenue and cost of revenue. Because these pass-through revenues can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends. Pass-through revenues for the quarters ended December 31, 2021 and 2020 were $1.7 billion and $1.8 billion, respectively. Pass-through revenue as a percentage of revenue, was 53% and 55% during the three months ended December 31, 2021 and 2020, respectively.
Gross Profit
Our gross profit for the three months ended December 31, 2021 increased $15.8 million, or 8.6%, to $200.2 million as compared to $184.4 million for the corresponding period last year. For the three months ended December 31, 2021, gross profit, as a percentage of revenue, increased to 6.1% from 5.6% in the three months ended December 31, 2020.
Gross profit changes were due to the reasons noted in Americas and International reportable segments below.
Equity in Earnings of Joint Ventures
Our equity in earnings of joint ventures for the three months ended December 31, 2021 was $7.9 million as compared to $8.2 million in the corresponding period last year.
The decrease in earnings of joint ventures for the three months ended December 31, 2021 compared to the same period in the prior year is primarily due to decreased earnings in our AECOM Capital segment compared to the prior year.
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General and Administrative Expenses
Our general and administrative expenses for the three months ended December 31, 2021 decreased $2.0 million, or 5.2%, to $36.4 million as compared to $38.4 million for the corresponding period last year. For the three months ended December 31, 2021, general and administrative expenses, as a percentage of revenue, decreased to 1.0% from 1.1% in the three months ended December 31, 2020.
The decrease in general and administrative expenses was primarily due to the execution of restructuring actions taken by management to increase profitability and simplify our operating structure.
Restructuring Costs
Since the first quarter of fiscal 2019, we have been implementing a restructuring plan to improve profitability. During the first quarter of fiscal 2021, we incurred restructuring expenses of $13.0 million, primarily related to personnel costs, including costs associated with recent executive transitions. During the first quarter of fiscal 2022, we incurred restructuring expenses of $3.4 million, primarily related to costs associated with advancing our previously announced actions to deliver margin improvement and efficiencies that result in a more agile organization.
Other Income
Our other income for the three months ended December 31, 2021 decreased to $2.9 million from $3.9 million for the corresponding period last year.
Other income is primarily comprised of interest income and net periodic pension adjustments.
Interest Expense
Our interest expense for the three months ended December 31, 2021 was $25.4 million as compared to $30.7 million for the corresponding period last year.
The decrease in interest expense for the three months ended December 31, 2021 was primarily due to lower interest rates on our outstanding debts compared to the prior year.
Income Tax Expense
Our income tax expense for the three months ended December 31, 2021 was $22.6 million as compared to $25.6 million in the corresponding period last year. The decrease in tax expense for the current period compared to the corresponding period last year is due primarily to a tax benefit of $21.9 million related to changes in valuation allowances, a tax expense of $16.1 million related to changes in foreign uncertain positions, offset by the tax impacts of an increase in overall pre-tax income of $31.4 million.
During the first quarter of fiscal 2022, valuation allowances in the amount of $21.9 million primarily related to net operating losses in certain foreign entities were released due to sufficient positive evidence obtained during the quarter. The positive evidence included a realignment of our global transfer pricing methodology that was implemented during the quarter which resulted in forecasting the utilization of the net operating losses within the foreseeable future.
We regularly integrate and consolidate our business operations and legal entity structure, and such internal initiatives could impact the assessment of uncertain tax positions, indefinite reinvestment assertions and the realizability of deferred tax assets.
Net Loss From Discontinued Operations
During the first quarter of fiscal 2020, management approved a plan to dispose via sale our self-perform at-risk construction businesses. As a result of these strategic actions, the self-perform at-risk construction businesses were classified as discontinued operations. That classification was applied for all periods presented.
Net loss from discontinued operations was $62.0 million for the three months ended December 31, 2021 and net loss was $55.8 million for the three months ended December 31, 2020, an increase of $6.2 million. The increase in net loss from discontinued operations for the three months ended December 31, 2021 was primarily due to losses recorded in the first quarter of fiscal year 2022 related to revisions of estimates for our working capital obligation to be paid and contingent consideration receivable related to the
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civil infrastructure business, partially offset by the losses recorded on the sales of our power business and losses related to the remeasurement of our civil infrastructure businesses to fair value recorded in the first quarter of fiscal year 2021 that did not recur in fiscal year 2022.
Net Income Attributable to AECOM
The factors described above resulted in net income attributable to AECOM of $61.5 million for the three months ended December 31, 2021 as compared to net income attributable to AECOM of $26.1 million for the three months ended December 31, 2020.
Results of Operations by Reportable Segment:
Americas
Three Months Ended
December 31,
December 31,
Change
2021
2020
$
%
( in millions)
Revenue
$
2,463.5
$
2,557.3
$
(93.8)
(3.7)
%
Cost of revenue
2,313.5
2,412.3
(98.8)
(4.1)
Gross profit
$
150.0
$
145.0
$
5.0
3.4
%
The following table presents the percentage relationship of statement of operations items to revenue:
Three Months Ended
December 31,
December 31,
2021
2020
Revenue
100.0
%
100.0
%
Cost of revenue
93.9
94.3
Gross profit
6.1
%
5.7
%
Revenue
Revenue for our Americas segment for the three months ended December 31, 2021 decreased $93.8 million, or 3.7%, to $2,463.5 million as compared to $2,557.3 million for the corresponding period last year.
The decrease in revenue for the three months ended December 31, 2021 was primarily driven by a decrease in pass through revenues primarily in our construction management business for high-rise buildings in New York City.
Gross Profit
Gross profit for our Americas segment for the three months ended December 31, 2021 increased $5.0 million, or 3.4%, to $150.0 million as compared to $145.0 million for the corresponding period last year. As a percentage of revenue, gross profit increased to 6.1% of revenue for the three months ended December 31, 2021 from 5.7% in the corresponding period last year.
The increase in gross profit for the three months ended December 31, 2021 was primarily due to reduced costs of a more efficient operating structure resulting from a realigned overhead and delivery structure, better operational execution, investments in technology and shared service centers to enhance efficiencies and underlying revenue growth excluding pass through revenues.
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International
Three Months Ended
December 31,
December 31,
Change
2021
2020
$
%
(in millions)
Revenue
$
802.4
$
755.6
$
46.8
6.2
%
Cost of revenue
753.0
716.5
36.5
5.1
Gross profit
$
49.4
$
39.1
$
10.3
26.3
%
The following table presents the percentage relationship of statement of operations items to revenue:
Three Months Ended
December 31,
December 31,
2021
2020
Revenue
100.0
%
100.0
%
Cost of revenue
93.8
94.8
Gross profit
6.2
%
5.2
%
Revenue
Revenue for our International segment for the three months ended December 31, 2021 increased $46.8 million, or 6.2%, to $802.4 million as compared to $755.6 million for the corresponding period last year. The increase in revenue for the three months ended December 31, 2021 was primarily attributable to increased volume in the Europe, Middle East, Asia and Australia compared to the prior year.
Gross Profit
Gross profit for our International segment for the three months ended December 31, 2021 increased $10.3 million, or 26.3%, to $49.4 million as compared to $39.1 million for the corresponding period last year. As a percentage of revenue, gross profit increased to 6.2% of revenue for the three months ended December 31, 2021 from 5.2% in the corresponding period last year.
The increase in gross profit and gross profit as a percentage of revenue for the three months ended December 31, 2021 was primarily due to an increase in revenue and reduced costs resulting from actions taken to improve efficiency, including consolidating real estate, implementing a streamlined overhead structure, and better operational execution.
AECOM Capital
Three Months Ended
December 31,
December 31,
Change
2021
2020
$
%
(in millions)
Revenue
$
0.8
$
0.3
$
0.5
166.7
%
Equity in earnings of joint ventures
1.1
3.8
(2.7)
(71.1)
General and administrative expenses
$
(3.0)
$
(1.9)
$
(1.1)
57.9
%
Seasonality
We experience seasonal trends in our business. The first quarter of our fiscal year (October 1 to December 31) is typically our weakest quarter. The harsher weather conditions impact our ability to complete work in parts of North America and the holiday season schedule affects our productivity during this period. Our revenue is typically higher in the last half of the fiscal year. Many U.S. state governments with fiscal years ending on June 30 tend to accelerate spending during their first quarter, when new funding becomes available. In addition, we find that the U.S. federal government tends to authorize more work during the period preceding the end of our fiscal year, September 30. Further, our construction management revenue typically increases during the high construction season of the summer months. Within the United States, as well as other parts of the world, our business generally benefits from milder weather conditions in our fiscal fourth quarter, which allows for more productivity from our on-site civil services. For these reasons, coupled with the number and significance of client contracts commenced and completed during a period, as well as the time of expenses incurred for corporate initiatives, it is not unusual for us to experience seasonal changes or fluctuations in our quarterly operating results.
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Liquidity and Capital Resources
Cash Flows
Our principal sources of liquidity are cash flows from operations, borrowings under our credit facilities, and access to financial markets. Our principal uses of cash are operating expenses, capital expenditures, working capital requirements, acquisitions, repurchases of common stock, dividend payments, and refinancing or repayment of debt. We believe our anticipated sources of liquidity including operating cash flows, existing cash and cash equivalents, borrowing capacity under our revolving credit facility and our ability to issue debt or equity, if required, will be sufficient to meet our projected cash requirements for at least the next twelve months. We expect to spend approximately $30 million to $40 million in restructuring costs in fiscal 2022 associated with previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies.
Generally, we do not provide for U.S. taxes or foreign withholding taxes on gross book-tax basis differences in our non-U.S. subsidiaries because such basis differences are able to and intended to be reinvested indefinitely. At December 31, 2021, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and therefore we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation. Based on the available sources of cash flows discussed above, we anticipate we will continue to have the ability to permanently reinvest these remaining amounts.
At December 31, 2021, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,091.4 million, a decrease of $143.4 million, or 11.6%, from $1,234.8 million at September 30, 2021. The decrease in cash and cash equivalents was primarily attributable to $262.3 million of cash used to repurchase common stock.
Net cash provided by operating activities was $194.9 million for the three months ended December 31, 2021 as compared to $7.1 million for the three months ended December 31, 2020. The change was primarily attributable to an increase in cash provided by working capital of approximately $229.2 million, partially driven by an 11-day improvement in days sales outstanding from prior year, and an increase in net income of approximately $28.2 million, offset by a decrease in adjustments for non-cash items of approximately $69.6 million. The improvement in operating cash flow was also partly due to the sales of our power construction business in the first quarter of fiscal year 2021 and the civil construction business in the second quarter of fiscal year 2021, which led to a net favorable year over year impact to operating cash flow of approximately $22.6 million. The sale of trade receivables to financial institutions during the three months ended December 31, 2021 provided a net use of cash of $17.7 million as compared to a net cash provided of $26.8 million during the three months ended December 31, 2020. We expect to continue to sell trade receivables in the future as long as the terms continue to remain favorable to us.
Net cash used in investing activities was $48.6 million for the three months ended December 31, 2021, as compared to $141.3 million for the three months ended December 31, 2020. Cash used in investing activities decreased primarily due to a $72.0 million decrease in cash disposed as a result of the sales of discontinued operations.
Net cash used in financing activities was $288.9 million for the three months ended December 31, 2021 as compared to $469.5 million for the three months ended December 31, 2020. The decrease was primarily attributable to decreased stock repurchases under the Stock Repurchase Program. Total borrowings under our credit agreement may vary during the period as we regularly draw and repay amounts to fund working capital.
Working Capital
Working capital, or current assets less current liabilities, decreased $235.0 million, or 36.1%, to $416.8 million at December 31, 2021 from $651.8 million at September 30, 2021. Net accounts receivable and contract assets, net of contract liabilities, decreased to $2,919.2 million at December 31, 2021 from $2,929.9 million at September 30, 2021.
Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 78 days at December 31, 2021 compared to 76 days at September 30, 2021.
In Note 4, Revenue Recognition, in the notes to our consolidated financial statements, a comparative analysis of the various components of accounts receivable is provided. Except for claims, substantially all contract assets are expected to be billed and collected within twelve months.
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Contract assets related to claims are recorded only if it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated. In such cases, revenue is recorded only to the extent that contract costs relating to the claim have been incurred. Award fees in contract assets are accrued only when there is sufficient information to assess contract performance. On contracts that represent higher than normal risk or technical difficulty, award fees are generally deferred until an award fee letter is received.
Because our revenue depends to a great extent on billable labor hours, most of our charges are invoiced following the end of the month in which the hours were worked, the majority usually within 15 days. Other direct costs are normally billed along with labor hours. However, as opposed to salary costs, which are generally paid on either a bi-weekly or monthly basis, other direct costs are generally not paid until payment is received (in some cases in the form of advances) from the customers.
Debt
Debt consisted of the following:
December 31,
September 30,
2021
2021
(in millions)
Credit Agreement
$
1,153.8
$
1,155.3
2027 Senior Notes
997.3
997.3
Other debt
77.9
83.0
Total debt
2,229.0
2,235.6
Less: Current portion of debt and short-term borrowings
(48.1)
(53.8)
Less: Unamortized debt issuance costs
(23.0)
(24.1)
Long-term debt
$
2,157.9
$
2,157.7
The following table presents, in millions, scheduled maturities of our debt as of December 31, 2021:
Fiscal Year
2022 (nine months remaining)
$
38.2
2023
50.8
2024
42.9
2025
37.1
2026
400.5
Thereafter
1,659.5
Total
$
2,229.0
Credit Agreement
On February 8, 2021, we entered into the 2021 Refinancing Amendment to the Credit Agreement (the “Credit Agreement”), pursuant to which we amended and restated our Syndicated Credit Facility Agreement, dated as of October 17, 2014 (as amended prior to February 8, 2021, the “Original Credit Agreement”), between the Company, as borrower, Bank of America, N.A., as administrative agent, and other parties thereto. The Credit Agreement consists of a $1,150,000,000 revolving credit facility (the “Revolving Credit Facility”) and a $246,968,737.50 term loan A facility (the “Term A Facility,” together with the Revolving Credit Facility, the “Credit Facilities”), each of which mature on February 8, 2026. The outstanding loans under the Term A Facility were borrowed in U.S. dollars. Loans under the Revolving Credit Facility may be borrowed, and letters of credit thereunder may be issued, in U.S. dollars or certain foreign currencies. The proceeds of the Revolving Credit Facility may be used from time to time for ongoing working capital and for other general corporate purposes. The proceeds of the Revolving Credit Facility and the Term A Loan facility borrowed on February 8, 2021 were used to refinance the existing revolving credit facility and the existing term loan facility under the Original Credit Agreement and to pay related fees and expenses. The Credit Agreement permits us to designate certain of its subsidiaries as additional co-borrowers from time to time. Currently, there are no co-borrowers under the Credit Facilities.
The applicable interest rate under the Credit Agreement is calculated at a per annum rate equal to, at our option, (a) the Eurocurrency Rate (as defined in the Credit Agreement) plus an applicable margin (the “LIBOR Applicable Margin”), which is currently at 1.2250% or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin” and together with the LIBOR Applicable Margin, the “Applicable Margins”), which is currently at 0.2250%. The Credit Agreement includes certain environmental, social and governance (ESG) metrics relating to our CO 2 emissions and our percentage of employees who identify as women (each, a “Sustainability Metric”). The Applicable Margins and the commitment fees for the
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Revolving Credit Facility will be adjusted on an annual basis based on our achievement of preset thresholds for each Sustainability Metric.
Some of our material subsidiaries (the "Guarantors") have guaranteed the obligations of the borrowers under the Credit Agreement, subject to certain exceptions. The borrowers' obligations under the Credit Agreement are secured by a lien on substantially all of our assets and our Guarantors' assets, subject to certain exceptions.
The Credit Agreement contains customary negative covenants that include, among other things, limitations on our ability and certain of our subsidiaries, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of their business, consummate mergers, consolidations and the sale of all or substantially all of their respective assets, taken as a whole, and transact with affiliates. We are also required to maintain a consolidated interest coverage ratio of at least 3.00 to 1.00 and a consolidated leverage ratio of less than or equal to 4.00 to 1.00 (subject to certain adjustments in connection with permitted acquisitions), tested on a quarterly basis (the "Financial Covenants"). Our consolidated leverage ratio was 2.40 to 1.00 at December 31, 2021. As of December 31, 2021, we were in compliance with the covenants of the Credit Agreement.
The Credit Agreement contains customary affirmative covenants, including, among other things, compliance with applicable law, preservation of existence, maintenance of properties and of insurance, and keeping proper books and records. The Credit Agreement contains customary events of default, including, among other things, nonpayment of principal, interest or fees, cross-defaults to other debt, inaccuracies of representations and warranties, failure to perform covenants, events of bankruptcy and insolvency, change of control and unsatisfied judgments, subject in certain cases to notice and cure periods and other exceptions.
On April 13, 2021, we entered into Amendment No. 10 to the Credit Agreement, pursuant to which the lenders thereunder provided a secured term “B” credit facility (the “Term B Facility”) to the Company in an aggregate principal amount of $700,000,000. The Term B Facility matures on April 13, 2028. The proceeds of the Term B Facility were used to fund the purchase price, fees and expenses in connection with our cash tender offer to purchase up to $700,000,000 aggregate purchase price (not including any accrued and unpaid interest) of our outstanding 5.875% Senior Notes due 2024.
The Term B Facility is subject to the same affirmative and negative covenants and events of default as the Term A Facility previously incurred pursuant to the existing Credit Agreement (except that the Financial Covenants in the Credit Agreement do not apply to the Term B Facility). The applicable interest rate for the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Eurocurrency Rate (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.
On June 25, 2021, we entered into Amendment No. 11 to the Credit Agreement, pursuant to which lenders have provided us with an additional $215,000,000 in aggregate principal amount under the Term A Facility. We used the net proceeds from the increase in the Term A Facility (together with cash on hand), to (i) redeem all of our remaining 5.875% Senior Notes due 2024 and (ii) pay fees and expenses related to such redemption.
At December 31, 2021 and September 30, 2021, letters of credit totaled $5.2 million and $5.2 million, respectively, under our Revolving Credit Facility. As of December 31, 2021 and September 30, 2021, we had $1,144.8 million and $1,144.8 million, respectively, available under our Revolving Credit Facility.
2027 Senior Notes
On February 21, 2017, we completed a private placement offering of $1,000,000,000 aggregate principal amount of our unsecured 5.125% Senior Notes due 2027 (the “2027 Senior Notes”). On June 30, 2017, we completed an exchange offer to exchange the unregistered 2027 Senior Notes for registered notes, as well as related guarantees.
As of December 31, 2021, the estimated fair value of the 2027 Senior Notes was approximately $1,052.1 million. The fair value of the 2027 Senior Notes as of December 31, 2021 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes. Interest is payable on the 2027 Senior Notes at a rate of 5.125% per annum. Interest on the 2027 Senior Notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017. The 2027 Senior Notes will mature on March 15, 2027.
At any time and from time to time prior to December 15, 2026, we may redeem all or part of the 2027 Senior Notes, at a redemption price equal to 100% of their principal amount, plus a “make whole” premium as of the redemption date, and accrued and
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unpaid interest to the redemption date. On or after December 15, 2026, we may redeem all or part of the 2027 Senior Notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to the redemption date.
The indenture pursuant to which the 2027 Senior Notes were issued contains customary events of default, including, among other things, payment default, exchange default, failure to provide notices thereunder and provisions related to bankruptcy events. The indenture also contains customary negative covenants.
We were in compliance with the covenants relating to the 2027 Senior Notes as of December 31, 2021.
Other Debt
Other debt consists primarily of obligations under finance leases and loans and unsecured credit facilities.
Effective Interest Rate
Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements, during the three months ended December 31, 2021 and 2020 was 3.4% and 5.2%, respectively.
Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three months ended December 31, 2021 and 2020 of $1.2 million and $1.8 million, respectively.
Other Commitments
We enter into various joint venture arrangements to provide architectural, engineering, program management, construction management and operations and maintenance services. The ownership percentage of these joint ventures is typically representative of the work to be performed or the amount of risk assumed by each joint venture partner. Some of these joint ventures are considered variable interest. We have consolidated all joint ventures for which we have control. For all others, our portion of the earnings is recorded in equity in earnings of joint ventures. See Note 5, Joint Ventures and Variable Interest Entities, in the notes to our consolidated financial statements.
Other than normal property and equipment additions and replacements, expenditures to further the implementation of our various information technology systems, commitments under our incentive compensation programs, amounts we may expend to repurchase stock under our stock repurchase program and acquisitions from time to time and disposition costs, we currently do not have any significant capital expenditures or outlays planned except as described below. However, if we acquire additional businesses in the future or if we embark on other capital-intensive initiatives, additional working capital may be required.
Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of December 31, 2021, there was approximately $470.4 million, including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees. For those projects for which we have issued a performance guarantee, if the project subsequently fails to meet guaranteed performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.
We recognized on our balance sheet the funded status of our pension benefit plans, measured as the difference between the fair value of plan assets and the projected benefit obligation. At December 31, 2021, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $332.7 million. The total amounts of employer contributions paid for the three months ended December 31, 2021 were $2.4 million for U.S. plans and $5.4 million for non-U.S. plans. Funding requirements for each plan are determined based on the local laws of the country where such plan resides. In some countries, the funding requirements are mandatory while in other countries, they are discretionary. There is a required minimum contribution for one of our domestic plans; however, we may make additional discretionary contributions. In the future, such pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan performance and other factors. In addition, we have collective bargaining agreements with unions that require us to contribute to various third party multiemployer plans that we do not control or manage. For the year ended September 30, 2021, we contributed $3.7 million to multiemployer pension plans.
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Contractual Obligations
Refer to our Annual Report on Form 10-K for the year ended September 30, 2021 for a discussion of our contractual obligations. There have been no changes, outside of the ordinary course of business, to these contractual obligations during the three months ended December 31, 2021.
Condensed Combined Financial Information
In connection with the registration of the Company's 2014 Senior Notes that were declared effective by the SEC on September 29, 2015, AECOM became subject to the requirements of Rule 3-10 of Regulation S-X, as amended, regarding financial statements of guarantors and issuers of guaranteed securities. The 2027 Senior Notes are fully and unconditionally guaranteed on a joint and several basis by some of AECOM's directly and indirectly 100% owned subsidiaries (the Subsidiary Guarantors). Other than customary restrictions imposed by applicable statutes, there are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to AECOM in the form of cash dividends, loans or advances.
The following tables present condensed combined summarized financial information for AECOM and the Subsidiary Guarantors. All intercompany balances and transactions are eliminated in the presentation of the combined financial statements. Amounts provided do not represent our total consolidated amounts as of December 31, 2021 and September 30, 2021, and for the three months ended December 31, 2021.
Condensed Combined Balance Sheets
Parent and Subsidiary Guarantors
(unaudited - in millions)
December 31, 2021
September 30, 2021
Current assets
$
2,824.5
$
3,054.8
Non-current assets
3,190.0
3,206.2
Total assets
$
6,014.5
$
6,261.0
Current liabilities
$
2,757.3
$
2,789.7
Non-current liabilities
2,747.3
2,797.3
Total liabilities
5,504.6
5,587.0
Total stockholders' equity
509.9
674.0
Total liabilities and stockholders' equity
$
6,014.5
$
6,261.0
Condensed Combined Statement of Operations
Parent and Subsidiary Guarantors
(unaudited - in millions)
For the three months ended
December 31, 2021
Revenue
$
1,735.8
Cost of revenue
1,644.7
Gross profit
91.1
Net income from continuing operations
15.4
Net loss from discontinued operations
—
Net income
$
15.4
Net income attributable to AECOM
$
15.4
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New Accounting Pronouncements and Changes in Accounting
For information regarding recent accounting pronouncements, see Notes to Consolidated Financial Statements included in Part I, Item 1.
Critical Accounting Policies and Estimates
Our accounting policies often require management to make significant estimates and assumptions using information available at the time the estimates are made. Such estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenues and expenses. If future experience differs significantly from these estimates and assumptions, our results of operations and financial condition could be affected.
The Notes to Consolidated Financial Statements in Part II, Item 8 of the 2021 Form 10-K, and "Critical Accounting Policies and Estimates" in Part II, Item 7 of the 2021 Form 10-K describe the significant accounting policies and estimates used in the preparation of our consolidated financial statements. We have not materially changed our estimation methodology since the 2021 Form 10-K.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.